The Reserve Bank of India signed a Special Currency Swap Agreement with the Central Bank of Sri Lanka.
Under the arrangement, the Central Bank of Sri Lanka can draw up to 1.1 billion US dollar for a maximum period of six months. This special arrangement is in addition to the existing Framework on Currency Swap Arrangement for the SAARC Member Countries.
Earlier on 25 March 2015, the Reserve Bank of India had signed a Currency Swap Agreement with the Central Bank of Sri Lanka for 400 million US dollar under the existing SAARC Currency Swap Framework within the overall limit of 2 billion US dollar.
What is Currency Swap Arrangement
The swap arrangements are intended to provide a backstop line of funding for the SAARC member countries to meet any balance of payments and liquidity crises till longer term arrangements are made or if there is need for short-term liquidity due to stressed market conditions.
Reasons behind the decision
The proposal to extend the additional currency swap facility of 1.1 billion US dollar for a limited period was decided by the Union Government in April 2015 based on the recommendation of the Reserve Bank of India for mitigating the possible currency volatility in the spirit of strengthening India’s bilateral relations and economic ties with Sri Lanka.
